Although average housing prices in the Cayman Islands have experienced double-digit declines over the past year, demand continues to remain high for luxury beachfront properties. Primary factors affecting housing prices include a substantial decline in residents, drop in foreign work permits, and decline in the island’s GDP since 2008. See the following article from Global Property Guide for more on this.
House prices in the Cayman Islands are down 15% on average in 2010, due to a drop in housing demand attributable to a shrinking population.
The Economics and Statistics Office recorded a decline of 7.3% in the overall population in 2009. In the midst of the worldwide recession, employers were forced to lay off foreign workers, who make up most of the working-age group in the island. As a result, the number of non-Caymanians fell from 25,152 to 21,655, a decline of almost 14%.
“With these people leaving the island there is a dramatic decrease of rental properties needed,” says Jeanette Totten, owner and broker at Cayman Luxury Property Group. “Many of town homes are sitting empty with either developers not being able to sell them or owners not being able to rent them.”
No area is doing well overall, but beachfront properties on Seven Mile Beach and Cayman Kai in Grand Cayman, the largest island, are still in demand. “These two areas have the best beaches on the island, and because of the limited amount of beachfront properties on the island there is always a demand for this type of property,” says Totten.
In the luxury market, beachfront homes priced between CI$900,000 (US$1.1 million) and CI$1.2 million (US$1.5 million) and condo waterfront properties ranging from CI$600,000 (US$750,000) to CI$800,000 (US$1 million) are selling well.
The average sales price for condominiums was CI$294,028 (US$367,535) for January to July, and CI$223,907 (US$279,884) for July to September, according to the Cayman Islands’ Lands and Survey Development 2010 statistics. For residential properties, the average sales price was CI$256,713 (US$320,891) for January to July, and CI$353,739 (US$442,174) for July to September.
The Cayman Islands, a British Overseas Territory, is among the most prosperous countries in the Caribbean. It enjoyed average annual GDP growth of 3.2% from 1997 to 2007. In 2008, economic growth contracted by 2.2%. The full impact of the economic crisis was felt in 2009 when GDP contracted by 6.6%.
A GDP decline of -3.5% to -4.5% is projected for 2010 by the Economics and Statistics office (ESO). The immediate future of the islands hinges on a recovery of the Caymans’ major markets.
Tourism and finance are the two pillars of the country’s economy.
- The Cayman Islands is a thriving international financial center. Financial services account for 53.5% of the GDP, with more than 280 banks currently registered.
- Tourism accounts for about 30-40% of country’s GDP. The Cayman Islands’ primary source of visitors is North America. After falling slightly in 2009, total visitor arrivals for the first half of 2010 rose at a rate of 2.7% over the same period last year. Improvements are seen in both air and cruise passenger arrivals. Plans to enhance tourism include improving cruise ship ports and increasing airlifts.
Construction down, labor market suffering
The construction industry is the top employer of foreign labour. Less working permits were granted in 2010 (an 11.2% drop year-on-year as of June). Foreign workers comprise more than 50% of the demand for rental properties.
Moderate growth is expected for the construction industry in 2011 and any improvement in the labour market will depend on it. Likewise, a strong rebound in housing rentals will depend on the rate of population growth.
Transaction volumes way down
There was a 13.8% drop in the number of property transfers, and a 15% decline in the total value of transfers in the first half of 2010 y-o-y, according to the Valuations and Estates Office. Freehold transfers fell 11.5%. Leasehold transfers fell by much more, by 31.1%.
The value of building permits granted in the first half fell 28.0% y-o-y, from CI$175.6 million to CI$126.4 million, according to the Department of Planning.
Permits for houses fell 36.3% to CI$51.2 million, from CI$80.4 million last year. For apartments and condominiums, the fall was even greater: 48.6%, from CI$64.4 million to CI$33.1 million.
The value of approvals for houses dropped 35.6%, from CI$72.7 million to CI$46.8 million. The value of approvals for apartments and condominiums plunged to its lowest level on record, from CI$100.2 million to CI$23.4 million—a drop of 76.7%.
Lending rates hit bottom
Mortgage interest rates in the Cayman Islands are typically tied to the prime interest rate set by the Cayman Islands Monetary Authority, which follows the US Fed funds rate. The Cayman Islands dollar (CI$) is pegged to the US dollar at CI$1 = US$1.25.
Since the fourth quarter of 2008, prime lending rate has remained at record low levels. In June 2010 the rate was 3.25%.
Mortgage growth in the Cayman Islands has been strong. The mortgage market expanded to 55% of GDP in 2009, from 48% of GDP in 2008. Domestic property loans in the first half of 2010 rose 3.0% compared to the same period last year.
The maximum loan-to-value (LTV) ratio is 70% of the property’s appraised value, with 10 to 15 year loans typical. Recently, some lenders have offered up to 30 to 40 years to Caymanians. The minimum loan amount is CI$300,000.
Major projects on Gran Cayman will boost economy
While the financial sector declined by roughly 4.1% in 2009, modest growth of financial services is expected in 2011, alongside a strong rebound in tourism and tourism-related developments
Two major developments, each worth $500 million, will have significant economic impact on the Cayman Islands – the Ritz-Carlton at Dragon Bay and Camana Bay, both on Grand Cayman.
The 360-acre Ritz-Carlton resort is selling several residential areas:
- The Secret Harbour marina village residences start at CI$1 million (US$1.25 million).
- Phase 1 of The DeckHouses, which consists of 19 single-family estate homes, is already complete.
- Oceanfront luxury condominiums called The Residences are also on offer.
The 500-acre Camana Bay is a mixed-use development, Grand Cayman’s newest community. It will have retail shops, restaurants and 60 leased apartments and town houses.
The government has also facilitated several high-end condominium developments on Seven Mile Beach, such as The Watercolours’ 39 residences, and the Waterford Resort, a fractional condo-hotel.
The Cayman Islands joins the medical tourism industry
The government want to make the Cayman Islands a major medical tourism centre. The Narayana Cayman University Medical Center —a 500-acre, 2,000-bed medical school and hospital complex— opens its first phase, a 200-bed hospital, in 2012. Duty concessions on medical supplies and equipment will be offered by the government, as well as reduced working permit fees.
The massive facility is expected to bring in millions of dollars.
This article from Global Property Guide. You can also view this article at Global Property Guide, an international real estate analysis site.